confirmed Monday it is laying off roughly 3,000 white-collar and contract employees, marking the latest in its efforts to slash costs as it makes a longer-range transition to electric vehicles.
Ford sent an internal email Monday to employees, saying it would begin notifying affected salaried and agency workers this week of the cuts. The email was viewed by The Wall Street Journal.
The 1% reduction in Ford’s workforce of about 183,000 mostly targets employees in the U.S., Canada and India. About 2,000 of the targeted cuts will be salaried jobs at the Dearborn, Mich., auto maker. The remaining 1,000 employees are working in contract positions with outside agencies, the company said.
The cuts weren’t unexpected. The Wall Street Journal and other media outlets reported in July that layoffs were coming for white-collar staff as part of a broader restructuring to sharpen the car company’s focus on electric vehicles and the batteries that power them.
Ford shares closed down 3.9% each on Monday, after news of a $1.7 billion jury verdict in a case involving a rollover accident with one of the company’s F-250 pickup trucks that left two people dead.
The company’s email, signed by Executive Chair
Bill Ford
and Chief Executive
Jim Farley,
said Ford is changing the way it operates and redeploying resources as it embraces new technologies that weren’t previously core to its operations, such as developing advanced software for its vehicles. The job cuts are effective Sept. 1, a spokesman said.
“Building this future requires changing and reshaping virtually all aspects of the way we have operated for more than a century,” the internal message said.
Mr. Farley has said recently that Ford has too many employees, and that the existing workforce doesn’t have the expertise needed to transition to a portfolio of electric, software-laden vehicles.
He has said he aims to cut $3 billion in annual costs by 2026 as part of his goal to reach a 10% pretax profit margin by then, up from 7.3% last year.
Like many global auto makers, Ford is pouring money into electric vehicles in an effort to close the sales gap with
Tesla Inc.
The company has said it would spend about $50 billion through 2026 to develop EVs, targeting global sales of two million by then.
Mr. Farley earlier this year divided the company into separate divisions, including one to focus on electric vehicles and advanced technologies, and another to handle its traditional internal-combustion-vehicle lines.
He has said profits from its lineup of gasoline and diesel-engine vehicles will help fund the transition, but that part of the business must operate more efficiently.
Supply-chain issues and a shift toward electric vehicles have accelerated changes in the car-buying process. We visit a car dealer to see how consumers and sellers are adapting and what changes might be here to stay. Photo: Adam Falk/The Wall Street Journal
’s shares slid nearly 5% in morning trading Monday, following news of a $1.7 billion jury verdict involving a fatal rollover accident in one of its older-model heavy-duty trucks.
A jury in Georgia on Friday reached the verdict after a three-week trial, determining punitive damages should be imposed on
Ford
F -4.98%
for selling 5.2 million Super Duty trucks that the plaintiffs’ lawyers argued had dangerously weak roofs vulnerable to collapsing in a rollover crash.
Ford’s stock, trading at about $15.12 a share Monday morning, fell more sharply than the broader market.
The lawsuit, brought by the children of the victims who died in the crash, centered on a 2014 accident in which a couple driving a 2002 Ford F-250 truck were killed when the right front tire blew out and the pickup rolled over. The victims, Melvin and Voncile Hill, were crushed inside the truck, according to court records.
“While our sympathies go out to the Hill family, we don’t believe the verdict is supported by the evidence, and we plan to appeal,” Ford said Sunday. “In the meantime, we aren’t going to litigate this matter through the news media.”
The verdict is believed to be one of Georgia’s largest and puts a spotlight on other older-model Super Duty trucks sold by Ford over a roughly 17-year period that the plaintiffs’ lawyers have argued have a similar roof design.
In the lawsuit, the plaintiffs’ attorneys allege that Super Duty trucks sold through the 1999-2016 model years had defectively designed roofs and Ford knew of the dangers posed at the time. The lawyers pointed to evidence they said showed that the trucks failed internal company testing and that in 2004, Ford developed a stronger roof but didn’t use it in sellable pickups until the 2017 model year, according to court documents.
Ford has identified 162 lawsuits and 83 similar incidents of roof crush in 1999-2016 Super Duty trucks, according to the pre-trial order.
Ford contends that Mr. Hill, the driver of the F-250 truck involved in the accident, improperly steered the vehicle after the tire ruptured, causing it to leave the roadway at a dangerous angle, the court records show.
Ford also said that the tire on the truck had the incorrect load-carrying capacity, which led it to fail, and the Hills had improperly used their seat belts, according to the court documents.
Often, high-dollar verdicts such as this one are later reduced by judges or the appeals court.
is facing a potential $1.7 billion in punitive damages after a Georgia jury reached a verdict Friday in a case involving a 2014 rollover of a Ford F-250 pickup truck that left two people dead.
The Gwinnett County jury determined that damages should be imposed on Ford for selling 5.2 million Super Duty trucks with what plaintiffs’ attorneys said were dangerously weak roofs that could crush passengers in a rollover accident, according to James Butler, a lawyer representing the plaintiffs in the case.
The case was brought by the family of a Georgia couple, Melvin and Voncile Hill, who were driving a 2002 Ford F-250 Super Duty truck from their farm when the right front tire blew out and the truck rolled over, Mr. Butler said. The Hills were crushed inside the truck, he added.
Ford Chief Executive Jim Farley said last month that the company continues to be hampered by recalls and customer-satisfaction actions.
Photo:
Nic Antaya/EPA/Shutterstock
“While our sympathies go out to the Hill family, we don’t believe the verdict is supported by the evidence, and we plan to appeal,” a Ford spokesman said Saturday.
The $1.7 billion verdict is believed to be one of Georgia’s biggest in history and is unusually large for an accident-related lawsuit involving an auto manufacturer. Typically, damages in these types of cases run in the millions of dollars, and many are settled out of court. Often, high-dollar verdicts are later reduced by judges or the appeals courts.
“The Hill family is glad this part of the case is finally over,” Mr. Butler said. “They intend to persevere and make Ford pay.”
On Thursday, the Georgia jury awarded plaintiffs Kim and Adam Hill, the children of the couple who died in the crash, $24 million in compensatory damages, Mr. Butler said. The jury allocated 70% of fault in the case to Ford, Mr. Butler said.
Ford executives have for years worked to tackle costly quality and warranty problems with their vehicles, including making this effort a priority under the current chief executive,
Jim Farley.
The company has issued 49 recalls this year, the most of any auto maker, according to data from the National Highway Traffic Safety Administration.
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“We continue to be hampered by recalls and customer-satisfaction actions,” Mr. Farley said on a July earnings call. “This affects our cost but more importantly, it falls short on our most fundamental commitment to our customers.”
Last year, Ford set aside more than $4 billion for warranty costs, up 76% from five years earlier. The car company’s total warranty expenses increased about 17% from 2016 to 2021.
Earlier this year, Mr. Farley brought on a new executive director of quality,
Josh Halliburton.
Before coming to Ford, Mr. Halliburton spent 17 years at J.D. Power, an independent research firm that specializes in assessing and studying vehicle quality.
“We are placing more time and emphasis on ensuring everything is done right upfront to prevent quality issues from manifesting later in the development process,” Mr. Halliburton said.
He added that he expects to see Ford’s warranty problems improve next year, but that it might take two to three years to see results with the most impact.
Billionaire investor George Soros’s investment fund has bought stakes in Tesla Inc. and Ford Motor Co. and added to existing stakes in EV makers Lucid Group Inc. and Nio Inc., according to a filing late Friday.
The fund acquired 29.5 million shares of Ford
F,
+2.21%
in the reporting period ended in June, the filing showed. It snapped up nearly 30,000 Tesla shares
TSLA,
+4.68%
in a new position as well.
New positions for the fund also included bets on Twitter Inc.
TWTR,
+0.73%,
the social-media company in the middle of a dispute with Tesla Chief Executive Elon Musk over their soured deal.
The Soros fund offloaded some of its holdings in Rivian Automotive Inc.
RIVN,
-0.13%,
however, ending the reporting period with slightly less than 18 million shares, down from a previous holding of around 20 million shares.
See also: Rivian loses nearly $2 billion in second quarter as expenses mount
New stakes for the fund also included Las Vegas Sands Corp.
LVS,
+2.60%
and Uber Technologies Inc.
UBER,
+0.71%.
The fund sold all of its shares of Bank of America Corp.
BAC,
+1.09%
and Citigroup Inc.
C,
+0.70%
as well as gaming company Take Two Interactive Inc.
TTWO,
+2.05%,
among others.
joined forces with labor leaders to oust Chief Executive Officer
Herbert Diess,
who was in the midst of a push to turn the German auto company into a top maker of electric vehicles.
Mr. Diess will be succeeded by
Oliver Blume,
CEO of VW’s sports-car maker Porsche AG and long an ally of the Porsche-Piëch family that controls a majority of VW voting rights. Mr. Blume will retain his job running Porsche, which is slated for an initial public offering this autumn.
The departing chief executive had repeatedly clashed with unions, which hold half the seats on the German equivalent of the company’s board of directors. Until now he had retained the support of the family, heirs to the VW Beetle inventor, Ferdinand Porsche.
Mr. Diess was informed around midday Thursday that the company’s core shareholders and labor representatives had decided to fire him. The broader supervisory board learned of the decision at a meeting at around 4:30 p.m. Friday local time, according to a person familiar with the proceeding.
The sudden ouster comes after renewed internal strife over the slow progress developing core software for the company’s new generation of electric vehicles. The delays have caused the launches of some models to be pushed back, raising doubts among the Porsche-Piëch family about Mr. Diess’s ability to deliver on his promises, people familiar with the situation said.
Herbert Diess is leaving VW as it struggles in developing core software for its new generation of electric vehicles.
Photo:
Ralph Orlowski/Reuters
VW’s leadership crisis has plunged the company’s electric-vehicle strategy into uncertainty and has raised questions about the company’s governance, which is dominated by a triumvirate of family shareholders, the German state of Lower Saxony and the country’s biggest trade union.
“The hope of the supervisory board must be for new group CEO Blume to have more success in guiding the software strategy of the group,” Daniel Roeska, analyst at Bernstein Research, said in a note to clients. “However, it will take months to come up with a new plan, and creating unrest as the group is heading into a challenging 2023 is the wrong time, in our view.”
Mr. Diess couldn’t be reached to comment. Mr. Diess has said that before joining VW, he had turned down a job offer from
Elon Musk,
which has fueled speculation that he could join
Tesla Inc.
if he left VW.
Auto-industry CEOs around the world are wrestling with how best to transition to new technologies—much of which isn’t core to their companies’ expertise and requires different thinking, cost structures and skill sets.
Car executives are under pressure to get ahead of new rivals, many of them in Silicon Valley, which have deeper pockets and are unencumbered by a capital-intensive legacy business focused on making gasoline-powered vehicles.
In Detroit, the leadership at
General Motors Co.
and
Ford Motor Co.
have outlined bold moves in recent years to transform their operations, including the creation of new supply chains for batteries and the hiring of new kinds of talent. Ford this year took the unusual step of splitting its gas-engine and EV operations into two separate divisions, a move that executives have said will help it be more agile in its shift to new technologies.
Meanwhile, investors are aggressively betting on the EV space, trying to figure out who will be the next Tesla.
With gas prices on a wild ride, many consumers are exploring whether buying an electric vehicle could save them money in the long run. WSJ’s George Downs breaks down four factors to consider when buying a new car. Photo composite: George Downs
Mr. Diess has defined the industry’s challenge as shifting from banging metal into cars to developing the skills, resources and vision to create software-defined cars, vehicles that in many ways have more in common with an iPhone than a conventional car. His attempt to catch up with Tesla was hampered by difficulties turning VW into a developer of software, which is the heart of modern electric vehicles and future self-driving cars.
In recent weeks, people familiar with the company said it had rebooted its plan to develop a unified operating system for its cars after trouble delivering the code led VW’s Audi and Porsche brands to postpone the launch of new premium electric models.
It couldn’t be determined whether Mr. Blume would continue to pursue Mr. Diess’s strategy of keeping core software development in-house or whether he would turn to
Alphabet Inc.’s
Google or
Apple Inc.
as some rivals have.
In March, Mr. Blume said he and his management team met senior Apple executives for a meeting at which they discussed a range of potential projects. Mr. Blume disclosed no further details, and it couldn’t be determined what was discussed.
Ferdinand Dudenhöffer,
director of Center for Automotive Research in Duisburg, Germany, said it was to be expected that Mr. Blume would present a new software strategy for the company.
“This big issue of the software-defined car is a huge challenge for conventional auto makers,” Mr. Dudenhöffer said. “Either auto makers will become tech companies like Google, Apple and Microsoft, or they will become dependent on the tech giants.”
Mr. Diess survived several challenges to his position. In December, following a clash with labor representatives, directors stripped him of some of his responsibilities and reshuffled his management team. But this week’s move to push him out came suddenly and wasn’t linked to any single incident, people familiar with the decision said.
At the supervisory-board meeting on Friday afternoon,
Hans Dieter Pötsch,
chairman of the supervisory board and a key ally of the Porsche heirs, presented a deal reached previously with top officials of the IG Metall trade union in a smaller meeting.
The families and union leaders agreed to remove Mr. Diess in the belief that Mr. Blume, 54 years old, who became CEO of Porsche in 2015, would lead with more consensus among management and VW stakeholders, people familiar with the decision said. Mr. Blume, an engineer by training, has long been a favorite of the Porsche-Piëch families and union leaders as a successor to Mr. Diess. But Mr. Blume has repeatedly said he was happy at Porsche.
Once the controlling families decided Mr. Diess had to go, they approached Mr. Blume, people familiar with the family said, and urged him to take the job. Mr. Blume agreed, they said.
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“Blume is seen as someone with a more congenial personality and management style,” one of the people said. “He speaks to his colleagues on the executive board differently and has had success at Porsche.”
According to the people with knowledge of the decision, the Porsche-Piëch family concluded that Mr. Diess’s personality led to repeated conflict within the company and that he didn’t appear to have the software problems under control. While not the only issue that weighed on the family’s mind, the software troubles began to affect new models and eroded the confidence that Mr. Diess could get the issues under control.
Hours before his ousting, Mr. Diess, who will step down on Sept. 1, posted a holiday message to workers ahead of the summer breaks.
“After a really stressful first half of 2022 many of us are looking forward to a well-deserved summer break,” he wrote on LinkedIn. “Enjoy the break—we are in good shape for the second half.”
Mr. Diess joined VW in 2015 from
Bayerische Motoren Werke AG
, initially as chief of the VW brand. In that role, he began to lay the groundwork for VW’s electric-vehicle strategy, a plan that has seen VW’s brands, including Porsche, Audi, Seat, Škoda, Lamborghini and Bentley, develop core electric models with a plan to shift fully to EVs this decade.
Under Mr. Diess’s leadership, VW embarked on a plan to build battery cell manufacturing companies around the world to power its new generation of EVs. It recently announced that it would create a new company in the U.S. under the Scout brand to build rugged, off-road electric trucks and SUVs. The move is part of a focus to rebalance the company’s heavy reliance on the Chinese market, where it makes 40% of sales.
While union leaders have acknowledged Mr. Diess’s strategic vision and his achievement in transforming VW’s culture for the EV age, they have questioned his ability to execute, as highlighted by the software problems.
Daniela Cavallo,
the head of VW’s works council, has said Mr. Diess had failed to involve employees in key decisions. She criticized him on his warning to the supervisory board last year that 30,000 jobs at its flagship plant were at stake if VW failed to accelerate its EV shift.
In a statement, Ms. Cavallo said the VW group “wants to emerge strengthened from the historical change in the world of mobility in a leading position. However, it is also our aim that, despite the great challenges, job security and profitability remain equal corporate goals in the coming years.”
Mr. Blume joined Volkswagen in 1994 and has held management positions for the brands Audi, Seat, Volkswagen and Porsche.
“Oliver Blume has proven his operational and strategic skills in various positions within the group and in several brands and has managed Porsche AG from a financial, technological and cultural standpoint with great success for seven years running,” Mr. Pötsch said. VW said Mr. Blume would continue as chief executive of Porsche after a possible IPO.
—Christina Rogers contributed to this article.
Write to William Boston at william.boston@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com
A rough month for stocks is drawing to a close, and many investors likely won’t be sad to see the back of it. And the last day of April trade is looking weak as Apple and Amazon failed to raise the bar on a mixed season for tech earnings.
Our call of the day comes from Keith Lerner, chief market strategist at Truist Advisory Services, who said “depressed” investor sentiment is the reason he hasn’t shifted to a full negative stance on stocks right now.
“Indeed with markets, it’s not about good or bad — it’s all about better or worse relative to expectations. When expectations are low, a little bit of good news can go a long way. That’s why markets tend to bottom when fear and uncertainty are at an extreme,” said Lerner in a recent note to clients.
He downgraded his equity stance to neutral in April after two years of a positive stance, noting that while the range of potential outcomes is wide, risk/reward is less positive.
He pointed to the latest survey from the American Association of Individual Investors (AAII), which showed the percentage of investors with a negative/bearish outlook surging to 59.4%. That was the highest since early March 2009, just a few weeks short of a major stock bottom following the 2008-09 financial crisis decline.
“To be fair, investors were correctly negative in January 2008 in the early stages of that market downturn,” he said.
The percentage of bullish investors is currently 16%, also close to a record low, leaving the bull/bear spread at -43%, a level that has been surpassed twice in the past 35 years — in the fall of 1990 and that March 2009 period, said Lerner.
Truist Advisory Services
A similar theme was heard from Thomas Lee, founder of Fundstrat Global Advisors, who told clients that the AAII sentiment survey was a “major bottom signal,” based on history. “So bad, it’s good,” he said.
Lee provided this chart showing when such a weak reading marked a stock bottom:
One footnote from Lee is that the AAII survey tends to sample older investors, and not the Reddit crowd.
Read: Boomers are leaving the stock market. Here’s what happens next.
Lerner adds other proof of investor negativity, such as the $45 billion flowing out of equity funds over the past two weeks. “This is an extreme that we have also seen during times of heightened uncertainty and volatility,” Lerner said.
For example: the post-Lehman Brothers bankruptcy, the U.S. debt downgrade, COVID-19 pandemic lows and two months before the 2020 U.S. presidential election. While the Lehman Brothers signal was “premature,” strong price returns followed the other periods, he said.
In short, Lerner said Truist follows the “weight-of-the-evidence approach,” which is telling it that depressed investor views and a “low hurdle for positive surprises” are the stock market’s biggest assets going.
The buzz
The Federal Reserve’s favored inflation gauge — the core personal consumer expenditure price index — rose a sharp 0.9%i, and employment costs also rose. The followed by the University of Michigan consumer sentiment index is still to come, and next week we’ll get a Fed meeting.
Amazon
AMZN,
-11.95%
is down 8% after its first loss in seven years. Apple
AAPL,
+1.34%
is down over 2% after the tech giant topped earnings and set a revenue record, but warned of billions in added costs from supply-chain woes.
Tesla
TSLA,
+6.32%
stock is higher after CEO Elon Musk tweeted that there were no more sales planned for now, after he sold nearly $4 billion worth.
Earnings from Chevron
CVX,
-0.94%,
Exxon
XOM,
+0.23%
have left those shares softer, while Honeywell
HON,
+4.98%
is up on results, while AbbVie
ABBV,
-10.36%,
Bristol-Myers Squibb
BMY,
-2.30%
and Colgate-Palmolive
CL,
-5.43%
are also all down on results.
Opinion: Big Tech is no longer winning as big, but these two stocks still seem safe
Elsewhere, Intel
INTC,
-5.25%
is down after results, while investors are cheering Roku
ROKU,
+9.57%
earnings. Also sinking are shares of Robinhood
HOOD,
+4.66%,
which missed forecasts and said fewer people were trading on its app.
And Digital World Acquisition Corp.
DWAC,
+8.07%,
the special-purpose acquisition company buying the company behind former President Donald Trump’s Truth Social, is surging after Trump resurfaced with a message on the platform.
Ukraine’s leader has accused Russia of trying to humiliate the UN by firing missles on Kyiv during a visit by Secretary-General António Guterres. And efforts to get trapped civilians out of embattled Mariupol continue.
China’s government has vowed more support for its economy, as the country battles COVID-19 outbreaks.
The Labor Department is worried Fidelity’s plan to allow Bitcoin into 401(k) plans is risky for retirees.
The markets
Stocks
DJIA,
-0.05%
SPX,
-0.47%
COMP,
-0.12%
are lower, with bond yields
TMUBMUSD10Y,
2.865%
TMUBMUSD02Y,
2.702%
higher and crude-oil prices
CL00,
+0.94%
up. Gold is climbing , while the dollar
DXY,
-0.37%
has cooled after Thursday’s massive rally, notably against the yen
USDJPY,
-0.57%,
which continues to drop. The Russian central bank cut interest rates to 14% and the ruble
USDRUB,
-2.12%
is rebounding.
Bitcoin
BTCUSD,
-1.67%
and other cryptos are modestly off.
The chart
Naomi Poole and a team of strategists at Morgan Stanley have rolled out a new Market Sentiment Indicator (MSI) to offer “tactical guidance on ‘risky assets.’” It aggregates survey, positioning, volatility and momentum data to gauge market stress and sentiment.
The MSCI All-Country World Index (you can track that via the exchange-traded fund iShares MSCI ACWI
ACWI,
+0.25%
) is used as a proxy for risk asset performance.
“Our analysis suggests that improving/deteriorating sentiment is a more powerful signal for forward returns than just extreme levels,” said Poole and the team. Using the level and direction of stress, the MSI is currently neutral and not giving off buy signals yet, they said.
The tickers
These were the top-traded tickers on MarketWatch as of 6 a.m. Eastern Time:
TSLA,
+6.32%
Tesla
AAPL,
+1.34%
Apple
AMZN,
-11.95%
Amazon
GME,
+0.76%
GameStop
AMC,
+2.49%
AMC Entertainment
NIO,
+7.12%
NIO
FB,
+2.85%
Meta Platforms
BABA,
+11.86%
Alibaba
NVDA,
+1.61%
Nvidia
TWTR,
+0.72%
Twitter
Random reads
A southern Italian town may hold the secrets to longevity. And it’s all down to food.
Pet duck helps solve a murder mystery.
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Is it time to bail out of stocks and bonds? This isn’t the market that investors likely signed up for back in 2021 when shares in GameStop Corp.
GME,
+4.69%
and movie chain AMC Entertainment Holdings
AMC,
+3.72%
were headed to the moon, drawing in droves investing neophytes.
The meme-stock frenzy, the one underpinned by social-media chatter as opposed to fundamentals, has fizzled, at least for now. Highflying technology stocks that could change the course of the world have been under pressure, as benchmark bond yields turn up with the promise of a Federal Reserve that is closing the purse-strings of too-loose monetary policy.
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Economists and market participants are predicting three, four, maybe as many as seven interest-rate increases, of about a 0.25 percentage points each, this year to tackle inflationary pressures that have gotten out of hand.
Read: What to expect from markets in the next six weeks, before the Federal Reserve revamps its easy-money stance
The upshot is that borrowing costs for individuals and companies are going up and the cheap costs of funds that helped to fuel a protracted bull market is going away.
Those factors have contributed partly to one of the ugliest January declines in the history of the technology-heavy Nasdaq Composite Index
COMP,
+3.13%,
which is down nearly 12%, with a single session left in the month, leaving one final attempt to avoid its worst monthly decline since October of 2008, FactSet data show.
Check out: Is the market crashing? No. Here’s what’s happening to stocks, bonds as the Fed aims to end the days of easy money, analysts say
What’s an investor to do?
Jason Katz, senior portfolio manager at UBS Financial Services, says that he’s had an “increased volume of hand-holding calls” from his high-net worth clients.
Katz said he’s telling investors that “it’s not about exiting the market now but making sure you are properly allocated.”
“It’s not a systemic problem we have in [financial markets], it’s a rerating,” of assets that fueled a speculative boom.
“You had a whole constituency of investments that should have never traded to where they did,” Katz said, “Aspirational stocks, meme stocks…all fueled by fiscal and monetary stimulus and this year it is about a great rerating,” of those assets, he said.
Art Hogan, chief market strategist at National Securities Corporation, told MarketWatch that losses come with the territory of investing but investors tend to feel it more acutely when stocks go down.
“It is our nature to feel losses more sharply than we enjoy gains. That is why selloffs always seem much more painful than rallies feel pleasurable,” Hogan said.
It is always important to note the difference between investing and trading. Traders purchase assets for the short term, while investors tend to buy assets with specific goals and time horizons in mind. Traders need to know when to take their losses, and live to trade another day, but investors who usually have time on their side need to invoke different tactics.
That is not to say that investors shouldn’t also be adept enough to cut their losses when the narrative shifts but such decisions should hinge on a change in the overall thesis for owning assets.
Hogan said that investors considering bailing on markets now need to ask themselves a few questions if they are “afraid.”
“’Have my reasons, for investing changed?’”
“’Have my goals changed? Has my time horizon for the money changed?,’” he said.
“Most importantly, ask yourself the question: ‘Am I skillful enough to get back into the market after the average drawdown has occurred,’” he said. “They certainly, don’t ring a bell at the [stock market] bottom,” Hogan said.
Data from the Schwab Center for Financial Research, examining a group of hypothetical investors over a 20-year time period, also supports the idea that being out of stocks, and in cash, for example, is unlikely to outperform investing in equities, even if investors were badly timing the market.
“The best course of action for most of us is to create an appropriate plan and take action on that plan as soon as possible. It’s nearly impossible to accurately identify market bottoms on a regular basis,” according to findings from Schwab’s research.
To be sure, the market going forward is likely to be tough sledding for investors, with some speculating about the possibility of a recession. The Russell 2000 index
RUT,
+1.93%
entered a bear market last week, falling at least 20% from its recent peak. And the yields for the 10-year
TMUBMUSD10Y,
1.771%
and 2-year Treasury notes
TMUBMUSD02Y,
1.164%
have compressed, usually viewed as a sign of an impending recession if the yields for shorter dated bonds rise above those for longer maturities.
And the rest of the stock market, looks fragile, even after a Friday flourish into the close, other equity bourses are looking at big monthly losses. Beyond the Nasdaq Composite, the Dow Jones Industrial Average
DJIA,
+1.65%
is down 4.4% so far in January, the S&P 500 index
SPX,
+2.43%
is off 7% thus far in the month and the Russell 2000 index is down 12.3% month to date.
Katz said that he’s advising many of his clients to look for quality stocks. ”
“High-quality growth and tech names have been wearing the black eye for [speculative tech], but “those [quality] stocks are starting to find their footing,” he said.
Indeed, Apple Inc.
AAPL,
+6.98%,
for example, surged 7% on Friday to mark its best percentage gain since July 31, 2020.
Katz also said international, and developing markets are good investments as well as small and midcap stocks. “I would remain long equities here, it’s just the right equities,” the UBS wealth manager said.
That said, wild intra and interday price swings are likely to continue to be a feature of this phase in financial markets, as the economy transitions from the COVID-19 pandemic and toward a regime of higher rates.
But slumps don’t necessarily mean the end of the world.
“Not every pullback becomes a correction, and not every correction becomes a bear…and not every bear becomes a diaster,” Katz said.
Hogan said that downturns also can be viewed as opportunities.
“Volatility is a feature not a bug, and the price we pay for the long-term higher average returns in the U.S. equity market,” he said.
The pain is piling up for equity investors after the long U.S. holiday weekend, with bond yields at levels not seen since early 2020, and oil prices tapping 2014 highs.
The pace of Federal Reserve monetary policy tightening amid the highest inflation in about 40 years, a bumpy start to the corporate earnings reporting season and pandemic uncertainties are just a few things on the worry list. Technology stocks
COMP,
-1.12%
are set to take the biggest hit on Tuesday, as a rapid rise in short term interest rates tends to make their future cash flows less valuable.
While a Deutsche Bank chart (below) reveals more tech-bubble worries, our call of the day makes a case for one of the biggest tech stalwarts, Apple
AAPL,
-0.43%,
saying the iPhone maker has an ace in the hole that few are paying attention to.
That call comes from investment adviser Wedgewood Partners, who kick off their fourth-quarter 2021 client letter with a warning about market volatility for 2022, triggered by central bankers who are about to usher in some market chaos by pulling the plug on years of cheap money. Even Chinese President Xi Jinping was heard warning the Fed not to hike interest rates at a virtual Davos on Tuesday.
However, the adviser also sees opportunities ahead as selling picks up speed, and they plan to stick to Apple, which they’ve owned for 16 years.
While Wedgewood said it couldn’t foresee the many products the company unveiled, “we did know that Apple’s vertically integrated [software and hardware] product development strategy was unique and extremely capable of creating products and experiences that customers thought worthwhile enough to spend growing amounts of time and money on,” said the adviser.
Today, that strategy remains intact, but more important Apple is commanding a key new realm, having developed over a dozen custom processors and integrated circuits, since launching its “A-series” processors. For example, one it produced in 2017 provided the iPhone X with enough power to operate FaceID 3-D algorithms, used to unlock phones and make digital payments.
“Apple has effectively created a semiconductor business that rivals and even surpasses some of the most established semiconductor-focused businesses in the industry,” said Wedgewood. “Apple continues to differentiate through vertical integration, which has been a hallmark of Apple’s long-term strategy to grow and capture superior profitability. It is difficult to predict what new products will be unveiled; however, we think this strategy should continue to serve shareholders quite well.”
Other top positions recommended by Wedgewood include telecom group Motorola
MSI,
-1.73%,
another tech stalwart Microsoft
MSFT,
-0.23%
and retailer Tractor Supply
TSCO,
-1.14%.
Here’s a final comment from Wedgewood about the stock storm it sees brewing. “The graphic below reminds us that when speculation reigns, markets can go far higher than what seems sober,” but when they fall “markets will repeat their long history of falling faster and further than what seems sober.”
Wedgewood Partners
“Long term investors should root for such downside. Such times are opportunities to improve portfolios. Our pencils are sharpened for opportunities as Mr. Market serves them up.”
The markets
Microsoft shares are slipping after the tech group confirmed it will buy Activision Blizzard
ATVI,
+27.39%
in a $68.7 billion cash deal. The gaming group’s shares are flying, along with those of rival Electronics Arts
EA,
+6.72%.
Goldman Sachs
GS,
-7.72%
added to a disappointing batch of bank results from last week, with shares down as earnings came up short, with Charles Schwab
SCHW,
-4.29%
also falling on gloomy results. Kinder Morgan
KMI,
-0.14%
and Alcoa
AA,
-1.43%
are still to come.
Airbnb shares
ABNB,
-2.49%
are slumping after ratings and target cut from an analyst who sees multiple headwinds and too-few catalysts.
The New York Empire state manufacturing index for January fell well short of expectations. A National Association of Home Builders index for the same month is still ahead.
An unpublished study by an Israeli hospital showed second Pfizer
PFE,
-1.78%
-BioNTech
BNTX,
-7.77%
or Moderna
MRNA,
-4.70%
boosters aren’t halting omicron infections. Separately, Moderna’s CEO Stephane Bancel said his company is working on a combined flu/COVID booster, while White House chief medical advise Dr. Anthony Fauci, said it’s too soon to tell if omicron will bring us out of the pandemic.
Another study says COVID infections are turning children into fussy eaters due to parosmia disorders that distort their sense of smell. And China state media says packages from the U.S. and Canada had helped spread omicron, as Hong Kong gets ready to cull thousands of hamsters.
An airline lobby group is warning of “chaos” for U.S. air travelers due to 5G services rolling out this month, in a letter signed by big carriers, UPS
UPS,
-1.55%
and FedEx
FDX,
-1.39%.
Larry Fink, chairman and chief executive of BlackRock
BLK,
-1.72%
said investors need to know where company leaders stand on societal issues.
Retailer Walmart
WMT,
-1.28%
is looking at creating its own cryptocurrency and nonfungible tokens, according to U.S. patent filings.
The markets
Uncredited
The Nasdaq Composite
COMP,
-1.12%
is sprinting ahead with losses, with the Dow
DJIA,
-1.43%
and S&P 500
SPX,
-1.24%
also lower Tuesday led by those for the Nasdaq-100
NQ00,
-1.28%
as bond yields
TMUBMUSD10Y,
1.848%
TMUBMUSD02Y,
1.034%
surge across the curve. Oil prices
BRN00,
+1.06%
CL00,
+1.56%
are surging after Iran-backed Houthi rebels launched a deadly drone attack on a key oil facility in Abu Dhabi. Goldman Sachs also predicted Brent could top $100 a barrel in 2023, while the OPEC left its 2022 global oil-demand forecast unchanged.
Losses spread to Asian
NIK,
-0.27%
and Europe stocks
SXXP,
-0.77%,
with a key German bund yields
TMBMKDE-10Y,
-0.012%
about to turn positive for the first time in three years.
The chart
A January survey of more than 500 investors polled by Deutsche Bank shows a slightly gloomier mood. For example, they are more bearish:
Uncredited
Many, especially those over 34, think tech shares are in a bubble:
Uncredited
And they continue to see inflation as the biggest risk to markets, but are also fretting a more aggressive Fed:
Uncredited
Here are the top stock tickers on MarketWatch as of 6 a.m. Eastern Time.
Ticker
Security name
TSLA,
+1.47%
Tesla
GME,
-5.61%
GameStop
AMC,
-6.32%
AMC Entertainment
BBIG,
+29.75%
Vinco Ventures
NIO,
-0.71%
NIO
AAPL,
-0.43%
Apple
CENN,
-4.72%
Cenntro Electric Group
NVDA,
-1.57%
Nvidia
BABA,
-0.85%
Alibaba
NVAX,
-4.04%
Novavax
Random reads
Tulsa pastor apologizes for wiping his saliva on a man’s face during a sermon.
The high environmental cost of your beloved fish-oil pills.
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Bond yields are rising again so far in 2022. The U.S. stock market seems vulnerable to a bona fide correction. But what can you really tell from a mere two weeks into a new year? Not much and quite a lot.
One thing feels assured: the days of making easy money are over in the pandemic era. Benchmark interest rates are headed higher and bond yields, which have been anchored at historically low levels, are destined to rise in tandem.
Read: Weekend reads: How to invest amid higher inflation and as interest rates rise
It seemed as if Federal Reserve members couldn’t make that point any clearer this past week, ahead of the traditional media blackout that precedes the central bank’s first policy meeting of the year on Jan. 25-26.
The U.S. consumer-price and producer-price index releases this week have only cemented the market’s expectations of a more aggressive or hawkish monetary policy from the Fed.
The only real question is how many interest-rate increases will the Federal Open Market Committee dole out in 2022. JPMorgan Chase & Co.
JPM,
-6.15%
CEO Jamie Dimon intimated that seven might be the number to beat, with market-based projections pointing to the potential for three increases to the federal funds rate in the coming months.
Check out: Here’s how the Federal Reserve may shrink its $8.77 trillion balance sheet to combat high inflation
Meanwhile, yields for the 10-year Treasury note yielded 1.771% Friday afternoon, which means that yields have climbed by about 26 basis points in the first 10 trading days to start a calendar year, which would be the briskest such rise since 1992, according to Dow Jones Market Data. Back 30 years ago, the 10-year rose 32 basis points to around 7% to start that year.
The 2-year note
TMUBMUSD02Y,
0.960%,
which tends to be more sensitive to the Fed’s interest rate moves, is knocking on the door of 1%, up 24 basis points so far this year, FactSet data show.
But do interest rate increases translate into a weaker stock market?
As it turns out, during so-called rate-hike cycles, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.
In fact, during a Fed rate-hike cycle the average return for the Dow Jones Industrial Average
DJIA,
-0.56%
is nearly 55%, that of the S&P 500
SPX,
+0.08%
is a gain of 62.9% and the Nasdaq Composite
COMP,
+0.59%
has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a Fed rate hike cycle.
Dow Jones Market Data
Interest rate cuts tend to occur during periods when the economy is weak and rate hikes when the economy is viewed as too hot by some measure, which may account for the disparity in stock market performance during periods when interest-rate reductions occur.
To be sure, it is harder to see the market producing outperformance during a period in which the economy experiences 1970s-style inflation. Right now, it feels unlikely that bullish investors will get a whiff of double-digit returns based on the way stocks are shaping up so far in 2022. The Dow is down 1.2%, the S&P 500 is off 2.2%, while the Nasdaq Composite is down a whopping 4.8% thus far in January.
Read: Worried about a bubble? Why you should overweight U.S. equities this year, according to Goldman
What’s working?
So far this year, winning stock market trades have been in energy, with the S&P 500’s energy sector
SP500.10,
+2.44%
XLE,
+2.35%
looking at a 16.4% advance so far in 2022, while financials
SP500.40,
-1.01%
XLF,
-1.04%
are running a distant second, up 4.4%. The other nine sectors of the S&P 500 are either flat or lower.
Meanwhile, value themes are making a more pronounced comeback, eking out a 0.1% weekly gain last week, as measured by the iShares S&P 500 Value ETF
IVE,
-0.14%,
but month to date the return is 1.2%.
See: These 3 ETFs let you play the hot semiconductor sector, where Nvidia, Micron, AMD and others are growing sales rapidly
What’s not working?
Growth factors are getting hammered thus far as bond yields rise because a rapid rise in yields makes their future cash flows less valuable. Higher interest rates also hinder technology companies’ ability to fund stock buy backs. The popular iShares S&P 500 Growth ETF
IVW,
+0.28%
is down 0.6% on the week and down 5.1% in January so far.
What’s really not working?
Biotech stocks are getting shellacked, with the iShares Biotechnology ETF
IBB,
+0.65%
down 1.1% on the week and 9% on the month so far.
And a popular retail-oriented ETF, the SPDR S&P Retail ETF
XRT,
-2.10%
tumbled 4.1% last week, contributing to a 7.4% decline in the month to date.
And Cathie Wood’s flagship ARK Innovation ETF
ARKK,
+0.33%
finished the week down nearly 5% for a 15.2% decline in the first two weeks of January. Other funds in the complex, including ARK Genomic Revolution ETF
ARKG,
+1.04%
and ARK Fintech Innovation ETF
ARKF,
-0.99%
are similarly woebegone.
And popular meme names also are getting hammered, with GameStop Corp.
GME,
-4.76%
down 17% last week and off over 21% in January, while AMC Entertainment Holdings
AMC,
-0.44%
sank nearly 11% on the week and more than 24% in the month to date.
Gray swan?
MarketWatch’s Bill Watts writes that fears of a Russian invasion of Ukraine are on the rise, and prompting analysts and traders to weigh the potential financial-market shock waves. Here’s what his reporting says about geopolitical risk factors and their longer-term impact on markets.
Week ahead
U.S. markets are closed in observance of the Martin Luther King Jr. holiday on Monday.
Read: Is the stock market open on Monday? Here are the trading hours on Martin Luther King Jr. Day
Notable U.S. corporate earnings
(Dow components in bold) TUESDAY:
Goldman Sachs Group
GS,
-2.52%,
Truist Financial Corp.
TFC,
+0.96%,
Signature Bank
SBNY,
+0.07%,
PNC Financial
PNC,
-1.33%,
J.B. Hunt Transport Services
JBHT,
-1.04%,
Interactive Brokers Group Inc.
IBKR,
-1.22%
WEDNESDAY:
Morgan Stanley
MS,
-3.58%,
Bank of America
BAC,
-1.74%,
U.S. Bancorp.
USB,
+0.09%,
State Street Corp.
STT,
+0.32%, UnitedHealth Group Inc.
UNH,
+0.27%, Procter & Gamble
PG,
+0.96%,
Kinder Morgan
KMI,
+1.82%,
Fastenal Co.
FAST,
-2.55%
THURSDAY:
Netflix
NFLX,
+1.25%,
United Airlines Holdings
UAL,
-2.97%,
American Airlines
AAL,
-4.40%,
Baker Hughes
BKR,
+4.53%,
Discover Financial Services
DFS,
-1.44%,
CSX Corp.
CSX,
-0.82%,
Union Pacific Corp.
UNP,
-0.55%, The Travelers Cos. Inc. TRV, Intuitive Surgical Inc. ISRG, KeyCorp.
KEY,
+1.16%
FRIDAY:
Schlumberger
SLB,
+4.53%,
Huntington Bancshares Inc.
HBAN,
+1.73%
U.S. economic reports
Tuesday
Empire State manufacturing index for January due at 8:30 a.m. ET
NAHB home builders index for January at 10 a.m.
Wednesday
Building permits and starts for December at 8:30 a.m.
Philly Fed Index for January at 8:30 a.m.
Thursday
Initial jobless claims for the week ended Jan. 15 (and continuing claims for Jan. 8) at 8:30 a.m.
Existing home sales for December at 10 a.m.
Friday
Leading economic indicators for December at 10 a.m.
The Japanese auto maker, which for decades has worked to expand its presence in the U.S., outsold GM by roughly 114,000 vehicles in 2021. Toyota’s total U.S. sales of 2.3 million rose about 10% compared with 2020, the company said Tuesday.
By contrast, GM reported a nearly 13% slide in results for a total of 2.2 million vehicles sold in 2021, as the semiconductor shortage took a bigger toll on the company’s manufacturing operations and left dealers with fewer vehicles to sell. GM had been the No. 1 auto seller in the U.S. since 1931, according to trade publication Automotive News.
Toyota has largely benefited from its decision to stockpile computer chips, which are used in a wide array of vehicle electronics. It bet earlier than most other auto makers on a recovering U.S. car market and cut parts and production orders less sharply than rivals, making it better prepared for an eventual surge in consumer demand.
While Toyota executives say they were successful in navigating some of last year’s supply-chain constraints, they don’t view the lead over GM as a permanent shift in the industry’s closely watched sales rankings.
“To be clear, this is not our goal, nor do we see it as sustainable,” said
Jack Hollis,
Toyota’s senior vice president of operations in North America. He added that the company doesn’t expect to use its dethroning of GM last year in its advertising.
A GM spokesman declined to comment on the company’s sales ranking. He said GM has given priority to its bestselling products—large pickup trucks and sport-utility vehicles—and expects sales growth this year as the chip shortage abates.
Other foreign auto makers and electric-car maker
Tesla Inc.
TSLA -4.17%
also surged ahead in U.S. sales in 2021, siphoning market share from Detroit, according to company reports and analyst forecasts.
Hyundai Motor Co.
of South Korea, for the second year in a row, notched sizable share gains, selling 738,081 vehicles in 2021 and boosting sales by about 19% over the prior year, the company said Tuesday.
Mazda Motor Corp.
,
Volkswagen AG
and
BMW AG
also posted stronger-than-average sales, research firm Cox Automotive estimates.
Need more horsepower? Want automated driving? Auto makers such as Dodge, Polestar and Jeep are exploring over-the-air updates like these as a way to generate new revenue streams and retain brand loyalty. WSJ’s George Downs explores whether car manufacturers excel at software development. Photo illustration: George Downs
Overall, auto makers sold just shy of 15 million vehicles in the U.S. last year, according to a forecast from research firm J.D. Power. That total would be up slightly from 2020, when the onset of the Covid-19 pandemic hurt car sales for part of that year. But it is a sharp drop from the mark of 17 million vehicles that the industry had eclipsed for five straight years before that.
Auto stocks rallied Tuesday after the latest sales results and news that
Ford Motor Co.
plans to double production of its new all-electric truck, after a rise in reservations.
SHARE YOUR THOUGHTS
Did you buy a new car in 2021, or do you plan to buy one in 2022? Why, or why not? Join the conversation below.
Shares in
Ford
were up nearly 11% on Tuesday afternoon. GM’s stock was up 6%, while Toyota’s American depositary receipts were trading at a record high of $195.42.
U.S. vehicle sales set a blistering pace last spring as American car shoppers surfaced, looking to spend their savings from the pandemic lockdown on new wheels. But by summer, the chip shortage that had been hobbling factory schedules world-wide resulted in nearly bare dealership lots, curbing sales in the second half of 2021.
Forecasters expect another muted year of vehicle sales, even though the chip shortage is expected to gradually ease in coming months. Auto executives have said it could take the entire year to substantially replenish dealership inventories, which likely would curtail sales despite what dealers say is strong underlying demand.
Edmunds.com expects U.S. sales to reach 15.2 million vehicles in 2022, up slightly from the expected final numbers from last year. Analysts at RBC Capital are more bullish, pegging the total at roughly 15.8 million vehicles, with an expected surge later in the year as supply improves.
GM was among the hardest hit by the chip shortage and other supply-chain problems.
Photo:
Mario Tama/Getty Images
Toyota executives said they expected U.S. auto sales to grow to about 16.5 million vehicles this year, lifted by historically low interest rates, record stock-market performance and higher savings rates that would help support shoppers.
Lofty prices are expected to persist, as the seller’s market created by the inventory crunch continues, analysts said. The average price paid for a new vehicle hit a record $45,700 in December, 20% higher than a year earlier, J.D. Power estimates.
Record used-vehicle pricing is contributing to strong new-car prices, J.D. Power said, because buyers trading in their old vehicles have more money to work with. The average trade-in vehicle in December was worth about $10,200, up from about $4,600 a year earlier, the firm said.
“Pent-up consumer demand will keep inventory levels near historical lows,” likely leading to more record pricing this year, said
Thomas King,
president of data and analytics at J.D. Power.
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The uneven disruption to production schedules jumbled the pecking order among auto makers in 2021. While the chip shortage and other supply-chain problems have affected all auto makers, GM and Ford were among the hardest hit, each having scrapped more than 600,000 planned vehicles in North America, according to research firm AutoForecast Solutions LLC.
Ford plans to report 2021 sales results on Wednesday.
On Tuesday, the Dearborn, Mich., auto maker said it planned to double its goal for manufacturing its new electric version of the F-150 pickup truck, targeting 150,000 a year. Ford said the increased production plans reflect high demand for the model, with about 200,000 reservations placed to buy one of the trucks.
Other sales winners included Asian and European brands, as well as Tesla, which said Sunday that global deliveries jumped 87% in 2021, to 936,000 vehicles. Tesla doesn’t break out sales figures regionally. Cox estimated that its U.S. market share rose to 2.2% last year—about even with
Mercedes-Benz
—from 1.4%.
Randy Parker,
head of national sales for Hyundai Motor America, said the auto maker took several steps to counter the market challenges, including leaning more on online sales operations and encouraging dealers to line up sales for vehicles that have yet to hit the lot.
He said he expects Hyundai to keep sharpening its efforts into 2022, aiming to build on its recent share gains.
“I don’t believe in coincidences,” Mr. Parker said. “I think that we adapted to the crisis extremely well.”
—Ben Foldy contributed to this article.
How the Global Chip Shortage Affects You
Write to Mike Colias at Mike.Colias@wsj.com and Christina Rogers at christina.rogers@wsj.com
